U NDERSTANDING THE E CONOMY Chapter 3.2

O BJECTIVES Identify the various measurements used to analyze the economy Explain the effects of the business cycle on consumers, businesses and government.

G OALS OF A H EALTHY E CONOMY 1. Increase Productivity 2. Decrease Unemployment 3. Maintain Stable Prices

G RAPHIC O RGANIZER KWL C HART What I Know about the Economy What I want to know about the Economy What I learned about the Economy

E CONOMIC M EASUREMENTS Economic Measurements, called indicators, can indicate whether an economy is weak or strong.

B RAINSTORM Come up with some examples of Positive and Negative Economic Indicators

E CONOMIC M EASUREMENTS 1. Labor Productivity 2. Gross Domestic Product 3. Standard of Living 4. Inflation Rate 5. Unemployment Rate

G RAPHIC O RGANIZER Make an organizer listed the 5 measures from previous slide. Example: Inflation Definition of Inflation Current Inflation Rate Web site were you found the current Inflation Rate

*E CONOMIC M EASUREMENTS Productivity – output per worker hour that is measured over a defined period of time Ways to increase productivity New equipment and facilities Additional training Financial incentives Reduce workforce and increase worker responsibility Specialization and division of labor

C OLLABORATIVE P AIRS You have been asked to suggest ways to increase productivity in a company mailroom. Each day the mailroom handles approx. 500 pieces of mail. These are sorted and delivered to 100 employees. With partner list and discuss improvements. Write a memo communicating suggestions to managers.

E CONOMIC M EASUREMENTS Gross Domestic Product (GDP) – output of goods and services produced by labor and property located WITHIN a country Principal way of measuring output in U.S.

E CONOMIC M EASUREMENTS Gross Domestic Product is made up of: Private Investment Government Spending Personal Spending Net Exports of Goods and Services Change in Business Inventory Current dollar and real GDP

*E CONOMIC M EASUREMENTS Standard of Living – measurement of the amount and quality of goods and services that a nation’s people have Divide GDP by population to get per capital GDP High standard of living associated with high level of productivity

*E CONOMIC M EASUREMENTS Additional Measures of Standard of Living Social services offered to citizen (free education and health care provided by government) Number of households per 1000 inhabitants with durable goods (washing machine, refrigerator, dishwasher, auto)

E CONOMIC M EASUREMENTS Inflation Rate – rising prices Low rate – 1% to 5% -- stable economy Double Digit – 10% or higher – devastates an economy Controlling inflation is major goal of government Inflation Calculator Current Inflation Rate

E CONOMIC M EASUREMENTS When inflation rises Government raises interest rates Discourages borrowing money Slows down the economy Brings down inflation rate

E CONOMIC M EASUREMENTS Inflation Measures Consumer Price Index (CPI)—measures the change in price of 400 specific retail goods and services Producer Price Index (PPI) – measures wholesale price levels Producer prices increases passed to consumer

E CONOMIC M EASUREMENTS Unemployment Rate – jobless rate Higher the rate – greater chances of economic slowdown Lower the rate – greater chances of economic expansion (growth) More people work Spend more money Pay more taxes Less social services State unemployment rates

E CONOMIC M EASUREMENTS Other Economic Indicators and Trends Conference Board – private research organization Consumer Confidence Index Consumer Expectations Index Jobs Index Poll consumers about job perceptions, personal finance, buying conditions

E CONOMIC M EASUREMENTS Retail Sales Rate of Housing Starts Sale of Trucks and Automobiles Wages and New Payroll Jobs

A SSIGNMENT Prepare a graphic organizer showing the phases of the Business Cycle Include indicators of each cycle with the cycle name Business Cycle consists of recurring changes in economic activity

B USINESS C YCLE Expansion or Prosperity Recession Depression or Trough Recovery

*T HE B USINESS C YCLE Expansion or Prosperity – economy is flourishing Low unemployment Increased production of goods & services Consumer spending is high New businesses start or expand

T HE B USINESS C YCLE Recession – economic slowdown up to 6 months Companies reduce workforce Consumers spend less Businesses produce fewer goods and services Research & development is cut back Plans for expansion are put on hold

T HE B USINESS C YCLE Depression – prolonged recession Great Depression of 1930’s Unemployment very high – almost impossible to find a job Businesses shut down Consumer spending is very low Production of goods & services down Poverty results

T HE B USINESS C YCLE Recovery – renewed economic growth following recession or depression GDP begins to increase Consumers spend more Unemployment declines Demand for goods & services increases Moderate business expansion

F ACTORS THAT A FFECT B USINESS C YCLE Business Consumers Government

W HERE ARE WE NOW ? Is the recession over?

F ACTORS THAT A FFECT B USINESS C YCLE Business Expands (hire workers) during Prosperity and Recovery Cut back (lay off workers) during Recession and Depression

F ACTORS THAT A FFECT B USINESS C YCLE Consumers During Recession Fear losing job or decrease in wages Cut back spending During Prosperity or Recovery Spend more money on material goods and luxury item Causes business to produce more

*F ACTORS THAT A FFECT B USINESS C YCLE Government – influence through policies and programs Recession – Economy needs a boost Reduce interest rates Cut taxes Institute federal programs to spark economy

F ACTORS THAT A FFECT B USINESS C YCLE Federal Reserve lowers interest rates of encourage spending If inflation is high Raise interest rates of discourage buying on credit

M ULTICULTURAL A CTIVITY Textbook page 66 – Global Market China Anxiously Seeks a Soft Economic Landing Critical Thinking Questions How do you classify China politically and economically? What is its new role in the global economy?

A SSIGNMENT Vocabulary Review – workbook page 19 Writing Summary Assignment: Textbook page 69 Questions # 21, 22, 23, 24 & 25

R EVIEW Complete the KWL Chart by completing the last column – What I learned about the economy.